Episode Summary

Tom moved to Kelowna from England in 2009 and has been in finance for 17 years. Working in Vancouver and Kelowna, he now focuses on protecting people and businesses.

Lance grew up in Vancouver and moved to Kelowna a couple of years ago. He has been in finance for 20 years, mostly on the institutional side, and about 3-4 years ago moved his focus to helping people.

On mortgage insurance:

Everyone needs to insure their mortgage, but nobody needs mortgage insurance. There are different types and ways to protect something. Mortgage insurance protects the lender, rather than the consumer.

Reasons to opt out of mortgage insurance

You are only potentially covered. If you get hit by a bus, your spouse will potentially get a payout. Mortgage insurance typically puts you on post-claim underwriting, which asks questions up front to see if you’re eligible to pay a premium. Then, only if a claim happens, they do the underwriting. They’ll check medical records at that time to see if you should have been insured. Small ailments could disqualify you; for instance, if you’ve had to be treated for a gastrointestinal disorder, even food poisoning, they would not insure you. If you’ve been tested for high blood pressure, you are not insurable.

Your premiums stay the same. Mortgage insurance premiums won’t go down as your principal goes down. If you have a $500,000 mortgage, the premium is based on that but it doesn’t decrease 10 years later.

The beneficiary is the lender. You’re protecting your family with the policy, but the lender is the first beneficiary. With interest rates being so low, it’s not the best time to pay down your mortgage; it’s better to invest in something on the side. Life insurance allows the beneficiary to decide where to put the money, but the mortgage insurance payout only allows your mortgage to be paid off.

It’s non-transferable. Rates will differ between institutions and different lenders will entice you. If you change lenders, you can’t take the mortgage insurance with you. You must requalify and you’ll be older, so it’s more expensive.

On what people should do instead:

Have your own individual life insurance instead of mortgage insurance, on a term basis. There is no point in paying for insurance if you don’t need it, so when you have a decreasing liability like a mortgage, so the insurance is matched to the length of the mortgage.

On the insurance strategy for acquiring investment properties:

It depends on why you’re doing it. If you’re buying multiple rental properties, the rent typically covers the mortgage payment, so you may not need insurance. But on a principal residence, you likely need it so that payments are made if you’re not around. It’s very individual and requires a discussion with each client.

On when it makes sense to be on a post-claim insurance policy:

Never. It’s like you “potentially” have insurance. You don’t want to pay for something you would only potentially get. Up front underwriting means, except in cases of fraud, you are covered. This is certainty and security.

On the price of life insurance:

It can be over 50% cheaper. You can have 30-year terms; different carriers have different terms (major ones look at 5, 10, or 20-year terms).

On what happens at the end of the term:

You can cancel if you don’t need it anymore. You can convert into something that lasts forever or can be set up for a new term. You can modify the term as you go. There is a non-cancellable option, which means the insurer can’t cancel it, only you can.

On why anyone gets mortgage insurance:

You don’t know what you don’t know. The most important thing is getting information out to consumers. Western society in general likes convenience, so when you’re already processing your mortgage it’s easy to add mortgage insurance on at that time.

On how the industry is set up:

Everyone has their own product. Now, more individual-based lenders won’t offer mortgage insurance because they know it’s crap, but the big banks offer it. Major lenders usually have a cap: some only offer $500,000 in coverage, others $750,000. So, million-dollar mortgages aren’t even covered. The mortgage insurance only pays the mortgage, but with life insurance, you can add to it.

Tom and Lance’s approach:

They ask what people want to do with some simple questions. Then, there is a needs analysis: in each case, they look at why people have the amounts they do.

On increasing your life insurance amount:

This depends on things like someone’s health and what they do for work. You must go through the entire process again to increase the policy (but you can reduce the amount at any time). Although this sounds inconvenient, in many cases clients don’t find out they’re sick without the health checks. They’ve had clients whose lives have been saved from going through the insurance application because they caught something before it was too late. Also, if your health becomes poor and your insurer discovers this, your current policy is not affected.

If something happens in your life that affects insurability but you only have mortgage insurance, it won’t pay anyhow. The life insurance process is more inconvenient up front, but it’s much more convenient for you and your family in the future.

On people who have mortgage insurance but should have got life insurance—what this means for them:

You can make an application and once approved, drop the mortgage insurance. Clients have gone to cancel their policy after getting life insurance and discovered their policy was not even on record with the broker, even though they’d been paying premiums. This has happened three times with the same bank. There is huge potential for complacency.

On license requirements:

People selling mortgage insurance or creditor protection products at the bank do not need to be licensed. Life insurance brokers like Lance and Tom do need to be licensed so they can provide advice.

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